TMI Blog2014 (3) TMI 288X X X X Extracts X X X X X X X X Extracts X X X X ..... the area stipulated as consideration for transfer of land being since substituted for cash, the consideration as stipulated, i.e., without reference to a different (or higher) rate for the other would be adopted - the different rate would not have any bearing on the computation of capital gains, which in either case would be per the respective rates - This is also so as the Revenue has not doubted the genuineness of the arrangement, and neither invoked s.50C. The assessee has worked out the area finally retained (6172.75 sq. ft.), and which would therefore be subject to capital gains u/s. 45(2), at 11%, qua which there is though no adjudication. Besides, how and in what manner, in case of any difference between the parties, would the issue get resolved. The ld. CIT(A) has also himself not given finding of the entire capital gains as having been computed by the assessee in terms of his findings. We have already stated that we consider this aspect as integral to the income determination (qua the relevant agreement). Accordingly, while presenting our observations in the matter (which may not be considered as final findings, but only as representing our understanding), we remit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -04, 2005-06 and 2006-07; the issues being common and arising from the same set of facts. The appeals were, accordingly, heard together, and are disposed of vide a common, consolidated order. The background facts 2. It would be relevant to recount the background facts of the case leading to the controversy/s arising for our adjudication. The assessee, an individual, is in the business of development of property (through her proprietary concern, M/s. Asha Financial Marketing Services), returning income for the relevant years from the said business (also refer PB pgs. 50 - 101, containing the said returns and the audited financial statements). As the dispute concerns primarily the income from the development of land at Vakola, a suburb of Mumbai, the events in relation thereto, though undisputed, bear statement. The property was purchased by one, Shri Hiralal C. Khatiwala, the assessee's father-in-law, in January, 1954. Vide an indenture dated 01.09.1970 (registered on 10.06.1971), it was converted into a property of his Hindu Undivided Family (HUF), consisting of himself as the Karta and his three sons, namely, Jyotendra, Prakash (the assessee's spouse) and Bharat Kh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order) In addition, the developer was also to provide 45% of the parking space (open and under stilt) to the owners, retaining the balance 55% space for itself. The existing structure on the said land had to be demolished in a phased manner, and toward which elaborate provisions stood made and set out in the Agreement. Though the development work commenced as scheduled, disputes and differences arose amongst the parties on different aspects of the work. Accordingly, conciliation was arrived at through an arbitrator, and a supplementary deed executed on 05.04.2004 (PB pgs.39-45). The principal modifications that came about were as under: i. The assessee was to surrender her right to receive nine flats (area: 6588 sq. ft.) for an agreed consideration of Rs.220.50 lacs, of which Rs.191.64 lacs stood received in advance, and the balance Rs.28.86 lacs was to be paid by 31.12.2004; and ii. Shri Bharat H. Khatiwala was to surrender his right to receive two flats (area: 1771 sq. ft.) for a consideration of Rs.70 lacs, of which Rs.47.50 lacs stood already received, and the balance Rs.22.50 lacs was to be received by 31.03.2005. The issues 3. The issue/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up area. It is to be noted that the appellant was already residing in the old structure and did not need any further construction for her own purpose. Thereafter out of the built up area received by her, only a part was retained for personal purposes and the balance units were sold. This supports the A.O.'s stand that the built up area received by her along with the land appurtenant thereto was in the nature of stock in trade. In the backdrop of these facts, it is found that the ratio laid down in the case laws quoted by the AR is not applicable to the facts of the present case. 11.4 The appellant's argument that the land's ownership still stands recorded in the names of the co-owner is also without any merit. As per s.2(47)(v) of the Act, 'transfer' includes any transaction allowing possession of property in part performance of a contract as mentioned in s. 53A of the Transfer of Property Act. Requisite authority in this case is obtained from the judgment of Bombay High Court in the case of Chaturbhuj Kapadia as reported in 260 ITR 491 (Bom). Hence, for income tax purposes, there is deemed transfer u/s.2(47); although in legal records; the appellant continue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized, is not in terms of development of site, i.e., to enable better realization of the land value, but by way of full scale construction thereon of as many as 71 residential units (flats) (of which 31 are to be retained by the two co- owners) over three wings by utilizing the full FSI allocable to the land under reference, besides parking space. In fact, that negotiations for the MOU were on for some time, is, apart from following as a natural logical inference inasmuch as such an arrangement could not possibly be arrived at overnight, but only as a result of deliberations, including assessment of the land potential as well as of the applicable FSI, is also apparent from the fact that the advance payments commenced three months prior thereto, so that negotiations for the understanding had, in fact, commenced from an even earlier date. The same, accordingly, crystallized into an Agreement in August, 2001. It is to be further noted that apart from a nominal sum in cash, the entire consideration for the transfer of land is agreed to be passed in kind, i.e., by way of construction, in the ratio in which parity is struck between the two, i.e., the value of land and the value of constru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration in the form of 45% of the constructed space, so that it is - to that extent - only a realization of their capital asset (land) by the owners, liable to capital gains. That the consideration is not in cash but in kind, and may involve the issue as to its valuation, would be of no moment. This in fact we also understand to be the finding of the Revenue authorities. Continuing further, the Agreement dated 28.08.2001 stood modified by the conciliation deed dated 05.04.2004. The same, without doubt, and even as observed by the ld. CIT(A), would have a material impact on the income arising to the assessee, including its nature and the year/s of taxability. For one, it clearly shows that despite commencement of work on the project, events were in a state of flux, and crystallized only upon arriving at conciliation through an Arbitrator. This is of crucial significance as income by way of capital gains would arise, irrespective of its receipt, i.e., on the accrual of the right to receive, so that a delay in the execution of the project and, consequently, possession of the property in consideration would not - in the normal course - defer the accrual of the capital gain and, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arity and continuity are relevant considerations, the same are so only for the purpose of and toward determining the nature and character of the transaction/s, which alone is of essence, so that it is essentially the nature and character of the transaction/s that is being sought to be determined. We have already stated our reasons for so considering and, accordingly, find no infirmity either on facts or in law in the Revenue applying the law on the basis of the facts as found. Merely denying the same would not suffice when the facts speak otherwise. Further, though the value of land and the constructed space may be arrived at separately, though based only on the consideration arising from RPPL, or the fair market value of land or construction as referable thereto, once a residential flat is delivered to the assessee, it becomes a one, composite asset, different and apart from its constituents, i.e., the land and the structure thereon. Why, the same would only be purchased and sold in the market as such, i.e., a residential flat, so that we are unable to appreciate the assessee's ground no. 4 qua the change in the nature of the capital asset, which arises as the natural conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iority industry status, to a form of a trading activity. Each business is essentially toward adding value, in satisfaction of a defined human want. The argument only needs to be stated to be rejected. In fact, it needs to be appreciated that land is by itself of little economic value unless the same is converted into some productive asset, i.e., toward some useful purposes, viz. housing, or is itself worked upon to some advantage, as for example agriculture or mining, and which would only be separate economic activities by themselves. 5.1 It would also be relevant and pertinent to discuss the manner in which the said alteration (per the conciliation deed) is to be arrived at. This, in fact, represents the second (ii) issue arising for our consideration. This is as, as stated earlier, the modification in the terms of the Agreement per the conciliation deed has a material impact on the quantum of the capital gains, i.e., apart from the year/s of its taxability. Not only the assessee revised her return for A.Y. 2005-06 subsequent to the survey u/s.133A on 02.02.2006 at her business premises, substantially increasing her income, further computations of income were also filed for bot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of any difference between the parties, would the issue get resolved. The ld. CIT(A) has also himself not given finding of the entire capital gains as having been computed by the assessee in terms of his findings. We have already stated that we consider this aspect as integral to the income determination (qua the relevant agreement). Accordingly, while presenting our observations in the matter (which may not be considered as final findings, but only as representing our understanding), we remit this aspect back to the file of the first appellate authority, so that the due process of adjudication is observed and no prejudice caused to either side; there being no argument on this aspect of the matter before us. We shall, nevertheless, clearly state the basis on which our calculation is premised to enable its appreciation. 5.2 We shall, for the sake of convenience, assume transfer of 55% of land against 45% of the constructed space, i.e., even though the assessee's share is 50% therein. This is as it would matter little if the said ratios are taken, i.e., instead of 27.5% and 22.5% (of the total land area) respectively, as we are dealing in terms of ratios. In any case, and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that extent), or income from other sources, i.e., generically speaking. The afore-stated working also assumes transfer of parking space in the same ratio, i.e., in proportion to the constructed area foregone. This is, as it appears from the tenor of the Agreement, that the same (parking space) is allotted in the same ratio and, further, as an adjunct and incidental to the original area (flats). If, however, there is no corresponding reduction in the parking space (to be retained by the parties in the ratio of 45% and 55%), the same involving apart from construction also land value, would have also to be suitably factored. It is though for the assessee to allocate the value of or ascribed to the constructed space between the construction of the residential units and the parking space. This would though become relevant only where the parking sold is not commensurate or in proportion to the area sold. 6.1 Another argument raised by the ld. AR during hearing was that what the assessee has received as consideration is the right to receive the constructed space, so that it cannot be equated with the actual available construction. True, but what needs to be appreciated is that this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question are well settled, and the only issue relates to the application of those principles to the particular facts of the case, no substantial question of law can be said to arise. We may still however, and only with a view to emphasize the truth of what is being said and highlight those differences (in facts), discuss some decisions by the hon'ble courts. In Sushila Devi Jain (supra), the assessee acquired agriculture land through inheritance and sold the same in parcels because of huge area. It was under these circumstances that it was held that the same did not constitute business. Again, in CIT vs. N.S.S. Investments (P.) Ltd. [2005] 277 ITR 149 (Mad), the question was with regard to the investment in shares held for the purpose of earning dividend income as being capital assets and not stock-in-trade, which portfolio separately earmarked by the assessee. In the instant case, on the other hand, we have found the assessee, herself a builder and developer, to have acquired the land under reference through a series of preconceived and premeditated steps and, further, the transfer as not a case of an outright sale but per a development agreement, over which the assessee r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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